USD weekly forecast

The US Dollar gained ground on Monday following a stream of commentary from various Federal Reserve policymakers. Most of them expressed a hawkish stance, suggesting they were not eager to start reducing interest rates.

On Tuesday, thin trading conditions resulted in the greenback moving without a clear direction against most of its rivals, ahead of additional Fed commentary. Moreover, a drop in US Treasury bond yields weakened the USD. However, later in the session, further commentary from rate-setters helped counterbalance the downside pressure on the US Dollar, with some moderately hawkish remarks.

On Wednesday, a risk-averse market sentiment provided some support for the USD, given its safe-haven status. This, coupled with an increase in US Treasury yields, led the 'greenback' to strengthen against its counterparts. Later in the evening, the release of the Federal Reserve Open Committee's latest meeting minutes provided additional support for the USD, indicating that the Fed is not yet ready to cut interest rates.

On Thursday, the greenback experienced a correction, stepping back from its recent winning streak from the previous evenings. However, as the session progressed, the USD edged higher as preliminary readings for both the manufacturing and service PMIs notably surprised to the upside. Additionally, a larger-than-expected decline in initial jobless claims indicated a strengthening US labor market, further boosting US economic sentiment. Nevertheless, a cautiously optimistic market sentiment offset the upside potential of the USD, as investors favored the more risk-sensitive peers of the US Dollar.

As the week came to an end, a growing appetite for risk diminished the potential gains for the USD, despite an unexpected increase in durable goods orders in April. This left the greenback on the defensive as the week concluded.

Looking ahead, investors will be eagerly awaiting the release of the Federal Reserve's preferred gauge of inflation next week. The latest Core PCE price index will be closely watched, and any indications of disinflation are likely to cause the greenback to decline.

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